U.S. Silica (SLCA) Tops Q2 EPS by 4c, Revenues Beat

U.S. Silica (NYSE: SLCA) reported Q2 EPS of $0.08, $0.04 better than the analyst estimate of $0.04. Revenue for the quarter came in at $394.9 million versus the consensus estimate of $392.05 million.

Second Quarter 2019 Highlights

• Revenue of $394.9 million for the second quarter of 2019 compared with $378.8 million in the first quarter of 2019, up 4% sequentially and down 8% over the second quarter of 2018.
• Overall tons sold of 4.904 million for the second quarter of 2019 compared with 4.830 million tons sold in the first quarter of 2019, up 2% sequentially and 9% over the second quarter of 2018.
• Contribution margin of $121.6 million for the second quarter of 2019 compared with $103.1 million in the first quarter of 2019, up 18% sequentially and down 22% over the second quarter of 2018.
• Net income of $6.2 million, or $0.08 per basic and diluted share, for the second quarter ended June 30, 2019, compared with net income of $17.6 million, or $0.23 per basic and $0.22 per diluted share, for the second quarter of 2018.
• Adjusted EBITDA of $85.5 million for the second quarter of 2019 compared with $68.8 million in the first quarter of 2019, up 24% sequentially and down 31% from the second quarter of 2018.

"Our Industrial and Specialty Products business delivered record contribution margin in the second quarter and Sandbox had all-time record delivered loads,'' said Bryan Shinn, president and chief executive officer. "These successes are a result of the significant growth and diversification strategy we have executed over the last three years. Going forward, we expect U.S. Silica to transition from a net cash consumer to a net cash generator. While we intend to continue investing in modest industrial growth projects and Sandbox technology and growth, we are modeling substantially lower overall capex, minimal investments in oil and gas sand and stable dividend payments. We plan to deploy some of our projected cash flow to reduce our gross debt to Adjusted EBITDA leverage ratio to 3 times by the end of 2021, through a combination of debt reduction and profitable growth,'' he added.

Outlook and Guidance

The Company expects its capital expenditures for 2019 to be approximately $125 million. As the Company continues to generate healthy cash flow from operations and following a significant growth initiative that was successfully executed over the last two years, the Company has decided to focus on reducing the level of its outstanding indebtedness. While investments will be made on an ongoing basis to increase the scale of the Company's Industrial and Specialty Products business, the Company anticipates that some of its free cash flow after capital expenditures and the regular payment of dividends will be used to strengthen the Company's balance sheet.

Despite a slowdown in U.S. economic growth, the Company hasn't observed any material changes to customer demand. Indeed, there is continued strong demand for ground silica products, and the Company continues to expand its capacity in both ground silica products and functional coatings. The Company has appointed new management for EP Minerals and plans to drive organic growth above historical rates through the introduction of new products and entry into new market segments. In particular, the Company is currently pursuing several potential growth platforms in areas like high purity filtration for uses in the pharmaceutical industry and the rubber and polymers industries.

SandBox, our industry-leading last-mile logistics solution, continues to make efficiency gains that drive more savings with customers, which we also believe will offset margin pressure. These include bigger boxes, minimal nonproductive time, and technological improvements to boost operational efficiency and labor cost effectiveness. The Company is actively exploring new applications for SandBox technology in other new oilfield segments and new industries.

For Oil & Gas proppants, volumes are expected to increase by approximately 10% sequentially in the third quarter of 2019, although some softening is to be expected in the fourth quarter of 2019 as exploration and production company budgets are stretched and activity levels decline. There has been further pricing weakness in the Permian basin, although some of that pressure may be offset by the rebound in Northern White sand pricing. At the same time, the Company's costs per ton continued to decrease, particularly in West Texas. U.S. Silica is at the very low end of the cost curve and will continue to differentiate its frac sand business as the Company becomes more deeply embedded in the value chain of its largest customers, by supplying value-added logistics services that complement the Company's frac sand supply business.

For earnings history and earnings-related data on U.S. Silica (SLCA) click here.

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